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AP Exclusive: Fuzzy math in health law formula

WASHINGTON (AP) — Another unintended consequence of President Barack Obama's health care law has emerged: Older adults of the same age and income with similar medical histories could pay widely different amounts for private health insurance due to a quirk of the complex legislation.

Those differences could be substantial. A 62-year-old could end up paying $1,200 a year more than his neighbor, in one example. And experts say the disparities among married couples would be much larger. A leading GOP senator is considering a fix.

Aware of the problem, the Obama administration says it is also exploring options to head off what could become yet another controversy over the health care overhaul. Starting in 2014, the law expands coverage to more than 30 million uninsured people and requires most Americans to carry insurance.

The glitch affects mainly older adults who are too young for a Medicare card but have reached 62, when people can qualify for early retirement from Social Security. Sixty-two is the most common age at which Americans start taking Social Security, although their monthly benefit is reduced.

As the law now stands, those who take early retirement would get a significant break on their health insurance premiums. Part or all of their Social Security benefits would not be counted as income in figuring out whether they can get federal subsidies to help pay their premiums until they join Medicare at 65.

"There is an equity issue here," said Robert Laszewski, a former health insurance executive turned policy consultant. "If you get a job for 40 hours a week, you're going to pay more for your health insurance than if you don't get a job."

The administration says it is working on the problem.

"We are monitoring this issue and exploring options that would take into account the needs of Social Security beneficiaries, many of whom are disabled or individuals of limited means," Emily McMahon, a top Treasury Department policy official, said in a statement to The Associated Press.

McMahon doubted the health care discount would start a stampede toward early retirement at a time when many experts are urging older Americans to stay on the job longer. Only a "limited number of individuals" would decide they're better off not working, she said.

FILE - In a June 13, 2011 file photo, President Barack Obama speaks to a group of supporters at a Mi …

Other administration officials, speaking on condition of anonymity because the issue is politically sensitive, said there's concern that the situation could create a perception that hard-working people get a worse deal compared with less-industrious peers.

A leading GOP senator is also getting involved. Sen. Mike Enzi, R-Wyo., is considering legislation that would eliminate the problem, aides said Thursday. It would allow Social Security retirement benefits to be counted as income, as has traditionally been the case for many programs that provide government assistance to individuals. Enzi is the senior Republican on the Health, Education, Labor and Pensions Committee.

To see how the Social Security wrinkle would work, consider a hypothetical example of two neighbors on the same block.

They are both 62 and each makes $39,500 a year. But one gets all his income from working, while the other gets $20,000 from part-time work and $19,500 from Social Security.

Neither gets health insurance on the job. Instead, they purchase it individually.

Starting in 2014, they would get their coverage through a new online health insurance market called an exchange. Millions of people in the exchanges would get federal tax credits, based on income, to make their premiums more affordable. Less-healthy consumers could not be turned away or charged more because of their medical problems.

The neighbor getting Social Security would pay an estimated $206 a month in premiums.

But the neighbor who makes all his income from work would pay $313 for health insurance, or about 50 percent more.

The early retiree can shield half his Social Security income, or $9,750. On paper, he would look poorer, making him eligible for a bigger tax credit to offset his premiums. But the full-time worker could not deduct any of his earnings.

The estimates were produced using an online calculator from the nonpartisan Kaiser Family Foundation.

The disparities appear to be even greater for married couples and families in which at least one member is getting Social Security. With a bigger household, both the cost of coverage and the federal subsidies involved are considerably larger.

The glitch seems to be the result of an effort by Congress to make things simpler. Lawmakers decided to use the definition of income in the tax code, which protects Social Security benefits from taxation.

The decision to use the tax code's definition of income has created other problems.

Medicare's top number-cruncher is warning that up to 3 million middle-class people in households that get at least part of their income from Social Security could suddenly become eligible for nearly free coverage through Medicaid, the federal-state safety net program for the poor. Chief Actuary Richard Foster says that situation "just doesn't make sense."